St. Vincent de Ferrer College of Camarin, Inc.

SVFC Compound,
San Vicente Ferrer St., Area D, Brgy. 178, Camarin, Caloocan City
Telephone Number: 668-25-75; Email address: st.vincentdeferrercollegeofccc@yahoo.com
Website: www.stvfc.com

ACCTG 14- APPLIED AUDITING

MIDTERM EXAMINATION

Name: Year:
Date:

1. Explain why auditor’s reports are important to users of financial statements.

2. What purpose is served by the Philippine Standards of Auditing?

3. Discuss the role of risk in the audit process and how its existence is communicated to the
user in the audit report.

4. Prior to naming Cruz and Company as its auditors, Del Pelayo of Verbatim, Inc., met with
Gracie Cruz and inquired about the auditors who would work on Verbatim’s audit. Pelayo
wants Cruz to assign only persons who graduated from his alma mater.

Required:
How should Gracie Cruz respond?

5. Describes the conditions under which an auditor is associated with financial statements.

6. What factors should an auditor considerin determining whether financial statements are
presented fairly in conformity with applicable financial reporting standards?

7. Why must the auditor refrain from explaining why she or he is not independent?

8. Describe the relationship between detection risk and evidence accumulation

9. Last year you were assigned to minor parts of the audit of the sales and collections cycle
for Patrick Corporation. This year you have been assigned significant responsibility in the
audit of the sales collections cycle. You recall that last year, the credit manager, Josie
Tan, treated you as if you were one of the clerks. In fact, you had to call her “Ms. Tan”
when you went to ask her several questions. This year, she has become very friendly.
Josie, as she now wants you to call her, has just invited you to join her for dinner at a very
exclusive private club in town. You were called away before you could give Josie a reply,
but she did indicate to you that last year she took your predecessor to such a
dinner.
Required:
How do you respond to Josie?
10. Who is the most important user of an audit’s report on a company’s financial statements:
company’s shareholders, or company’s creditors? Briefly explain your rationale and
indicate how auditors should resolve potential conflicts in the needs of the parties.

11. In addition to an understanding of the business and the industry, what are the
requirements for an effective audit?

12. What is an “engagement letter? “Why is its use recommended prior to rendering of
professional services by CPA’s?

13. How does audit planning assist in assessing inherent risk?

14. Name three sources of business and industry information?

15. Who participates in the pre-audit conference, and what topics should be covered?

16. Who participates in the pre-audit conference, and what topics should be covered?
17. Why must the auditor test the information system prior to testing transactions and
balances?

18. Analytical procedures consist of evaluations of financial information made by a study of

plausible relationships among both financial and nonfinancial data. They are ranger from
simple comparisons to the use of complex models involving many relationships and
elements of data. They involve comparisons of recorded amounts, or ratios developed
from recorded amounts, to expectations developed by the auditors.

Required:
a. . Describe the broad purpose of analytical procedures.
b. . Identify the sources of information from which an auditor develops expectations
c. Describe the factors that influence an auditor’s consideration of the reliability of
data for purposes of achieving audit objectives.
(AICPA Adapted)

19. Define internal control over financial reporting. What is difference between internal
controls over financial reporting?

20. What is an organization’s control environment? What are the major elements of a control
environment?

21. What is the implication of a material misstatement in the account balances at year end in
terms of providing feedback on the effectiveness of internal control over financial
reporting? Explain.

22. What are the primary factors that should be considered in determining whether the
auditor needs to directly test year end account balances?
23. What are some important controls that an auditor should address in assessing the level of
fraud risk?

24. To what extent can the auditor use management’s process in evaluating internal control,
including evidence gathered, to plan and execute the auditor’s integrated audit?

25. what evidence might the auditor gather to evaluate whether or not company has made a
commitment to appropriate levels of financial competences? How would the auditor
assess whether the company’s accountants and others in the process were competent?